VANCOUVER ISLAND UNIVERSITY. ECON212: PRINCIPLES OF MACROECONOMICS, Spring 2013 SAMPLE MIDTERM EXAM. Name (Last, First): ID #: Signature:

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1 Important: Please remember it is a sample exam. Number of questions in each section and structure of questions in section b and c would vary as discussed in class VANCOUVER ISLAND UNIVERSITY ECON212: PRINCIPLES OF MACROECONOMICS, SAMPLE MIDTERM EXAM Name (Last, First): ID #: Signature: THIS EXAM HAS TOTAL 14 PAGES INCLUDING THE COVER PAGE Instructions: Total marks and you have 75 Minutes to complete the exam. Please answer your MCQs in the table provided on the last page and short questions in the space provided. For short answer and easy type questions YOU MUST SHOW YOUR ALL WORK TO GET FULL MARKS. IF YOU DO NOT SHOW WORK, YOU MAY NOT GET FULL MARKS EVEN FOR A CORRECT ANSWER. Use the marks assigned to each question as a guide to allocating your time across questions. Good Luck on Your Exam

2 2 PART A: MCQ (There will be 30 MCQs in this section which is worth 30 marks) 01. Macroeconomics is mainly concerned with the study of a) fluctuations and trends in aggregated data b) individual households and how they deal with problems like inflation and unemployment c) governments and their intervention in individual markets d) large economic units such as General Motors or Molson Breweries 02. Potential or full-employment output is a) a goal that can never be achieved by the economy b) the GDP that would be produced if the economy's resources were fully employed at a normal intensity of use c) achieved during periods when all of the labour force is employed d) the maximum GDP that an economy actually achieves throughout its entire history e) the GDP that could be produced if the economy's resources were fully employed at their maximum intensity of use 03. Suppose that in 2007 Canada's automobile manufacturers produced 2 million cars priced at $ each. And in 2008 they produced 1 million cars priced at $ each. Ceteris paribus, the change in nominal national income is a) insufficient information to know b) a decrease because fewer cars were produced c) no change in nominal national income d) an increase because the price of each car increased 04. Which if the following is the main result of long-term economic growth? a) increasing inflation rate b) decreasing interest rates c) decreasing unemployment rate d) a rising average living standards e) appreciation of the domestic currency 05. In the study of short-run fluctuations in national income, potential income (output) is usually assumed to be a) irrelevant, as the economy is rarely there b) falling at its average growth rate c) moving together with potential output in neighbouring countries d) equal to actual income e) constant

3 3 06. Suppose the unemployment rate is 8.5 percent and we know that frictional and structural unemployment together account for 5.5 percent. The cyclical unemployment rate is then a) -3.0 percent b) 8.5 percent c) 5.5 percent d) 3.0 percent e) 14 percent 07. A nation's gross domestic product (GDP) in a given year measures the a) opportunity cost of the economy's national output b) market value of national output produced by the economy c) level of national income that is subject to taxation by the federal government d) value of output produced by the economy, measured in constant dollars e) dollar income earned by the nation's producing sector 08. Which of the following transactions would not be included in the calculation of GDP on the expenditure side? a) The purchase of ground beef by McDonald s b) The purchase of an airplane by Air Canada c) The purchase of a plumber s services by a household d) The purchase of a new condo by a household 09. If a country is experiencing inflation, the change in the nominal national product will a) be falling faster than the rate of inflation b) equal the change in the real national product c) overstate the inflation rate d) understate the value of national income e) overstate the change in the real value of production 10. When calculating GDP using the expenditure approach, the investment component includes a) fixed investment minus depreciation b) net investment plus depreciation c) gross investment plus depreciation d) net investment only e) net investment minus depreciation 11. In the simple macroeconomic model, "autonomous expenditures" are a) not dependent on national income b) induced expenditures c) non-domestic expenditures d) dependent on national income e) those which are constant

4 4 12. Refer to the following table. Dependent variable Independent Variable The slope is equal to a) 0.4 b) 4.0 c) 0.6 d) Which of the statement is incorrect a) Real GDP per person in Canada doubled between 1969 and 2010 b) Real GDP per person is real GDP divided by the population c) BY measuring the standard of living by using real GDP per person we remove any influence from rising prices d) Real GDP per person tells us the value of real GDP when all the economy s labour, capital, land and entrepreneurial ability are fully employed 14. A south sea island produces only coconuts. In 2005, the price of coconut is $1.5 and quantity produced is 350. In 2010, the price of coconut is $1.0 and quantity produced is 450. Assuming 2005 as the base year, real GDP in 2010 in terms of base-year price is a) 450 b) 675 c) 350 d) When the unemployment rate is less than the natural unemployment rate, real GDP is than potential GDP and the output gap is a) greater; negative b) smaller; positive c) smaller; negative d) greater; positive 16. The unemployment that rises when changes in technology or international competition change the skills needed to perform jobs or change the location of jobs is unemployment a) cyclical b) frictional c) structural d) natural 17. The CPI in 2007 was and in 2008 was The inflation rate is a) 2.3% b) 2.6% c) d) Insufficient information

5 5 18. The economic growth rate is the annual percentage change of a) real GDP b) labour productivity c) the quantity of money d) real GDP per person 19. Between 1910 and 2010, the average growth rate if real GDP per person in Canada was 2% a year. During this period grew at a faster rate than a) real GDP; the population b) the population; real GDP c) GDP; the population d) Inflation; real GDP 20. According to new growth theory, experience diminishing returns a) labour does not b) knowledge is capital that does not c) physical capital does not d) factors of production

6 6 PART B: Short Answer Questions a. (5 marks) Use the following table, Calculate Canada s GDP in Item Billions of dollars Wages paid to labour 815 Consumption expenditure 885 Net domestic income at factor cost 1,210 Investment 304 Government expenditure 357 Net exports 32 Depreciation 202 Using expenditure method, GDP equals consumption expenditure plus investment plus government expenditure plus net exports, so GDP equals $885 billion + $304 billion + $357 billion $32 billion, or $1,578 billion. b. (5 marks) The table provides data on the economy of Maritime Republic that produces only fish and crabs. Calculate Maritime Republic s real GDP in 2012 assuming 2011 as the base year. What is the GDP deflator in 2012 Quantities Fish Crabs 1,000 tonnes 1,100 tonnes 500 tonnes 525 tonnes Prices Fish Crabs $20 a tonne $30 a tonne $10 a tonne $8 a tonne

7 7 c. In Nova Scotia in May 2011, the labour force was 501,700 and 458,100 people were employed. In June 2011, the labour force increased by 4,600 and the number employed increased by 9,300. Calculate the unemployment rate in May 2011 and in June The May 2011, the unemployment rate was 8.7 percent and the June 2011, the unemployment rate was 7.7 percent. In May 2011, unemployment was 501,700 minus 458,100, which equals 43,600. The unemployment rate was (43,600/501,700) 100, which is 8.7 percent. In June, the labour force was 4,600 more than in May, so the labour force was equal to 506,300. In June, the number of employed workers was 458,100 plus 9,300, which equals 467,400. With employment in June of 467,400 and a labour force of 506,300, the number of unemployed workers in June was 506,300 minus 467,400, which equals 38,900. As a result, the unemployment rate in June 2011, was (38,500/506,300) 100, which is 7.7 percent. d. If a severe drought decreases labour productivity, explain what happens to i. Potential GDP The production function shifts downward and equilibrium employment decreases, both of which decrease potential GDP ii. Employment Employment Decreases. The demand for labour decreases, which decreases equilibrium employment iii. The real wage The real wage falls. The demand for labour decreases, which lowers the equilibrium real wage rate

8 8 e. (5 marks) The list below provides some national income figures for the country of Econoland. All figures are in millions of dollars. Using the income approach, what is the value of GDP for Econoland? Items $$ GDP: Expenditure Method Wages & Salaries Interest income Personal consumption 3900 Personal savings 1100 Personal income taxes 200 Business profits Indirect taxes Subsidies Govt purchases 1000 Exports 350 Imports 390 Net private investment 950 Depreciation GDP 5960

9 9 PART C: Essay Carefully discuss at least of types of economic growth theories, e.g., classical and new growth theories. What type of theory you think more applicable and why? *END OF EXAMINATION*

10 10 Name: Signature: Please answer your MCQs in the following table

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